Economics: pre- and post- Copernican

Author Note: The occasion for this piece is Nicole Foss's upcoming talk in Milwaukee on January 4. [She is also speaking in Madison January 3.] Tom Brandstatter and other members of Transition Milwaukee are trying to get her interviewed on the local NPR station. Because the station called upon a local academic economist to vet her credentials, and came up with the standard dismissal--Peak Oilers fail to realize that innovations will occur--we are getting push back. I sent this to the WUWM (NPR station) contact person. Consider it an open letter to WUWM, NPR, and anyone else who will listen. - Erik Lindberg

Asking an economist to evaluate the work of Nicole Foss is a bit like asking a Baptist Minister to evaluate the work of a secular, agnostic theologian or philosopher of religion, for we are dealing with two competing belief systems and Foss (along with Richard Heinberg, John Michael Greer, Juliet Schor, Wendell Berry, and to some extent Bill McKibben) is, among other things, challenging the economists unquestioned belief in a very specific view of the world ,as well as numerous elements of faith.

The reason why people like me and Tom and Transition Milwaukee folk are so hot under the collar about these things is that the economist’s view of the world is the predominant one and is rarely if ever questioned even by the more questioning media outlets in our society (like NPR), on the one hand, and on the other hand is cracking under its own weight: there are clear, accessible and devastating critiques of this world view, but they almost never get air time, often because they are dismissed out of hand by our Baptist Ministers who are too often given the power to vet us. Add to this the fact that the world-view of economists may be leading us to ecological, not to mention economic ruin, and you can see why we feel all this urgency. Juliet Schor is very good on the ecological footprint of economic growth.

At any rate, we are dealing here, with “structure of scientific revolution” type issues. A better analogy than that of the Baptist Minister may be between pre-Copernican and Copernican astronomy. For traditional economists put economic growth and the human ingenuity that, they believe, alone powered this growth, at the center of the universe. We Copernican economic observers, in contrast, are decentering this world view.

As briefly as possible, here are some key differences: economists believe that beginning with the industrial revolution, humans (or rather Europeans) “unlocked the mystery of permanent economic growth,” as investment banker turned historian William Bernstein puts it. They believe that because we now understand the science necessary to fuel nearly unlimited technological advances, because we have opened capital markets, and have a fairly conducive political system with property rights and freedom from arbitrary confiscations, there is no reason why we can’t have another 1000 years (seriously) that will follow the same exponential trajectory of growth. Believing the “law” of supply and demand to be a kin to laws of physics, a law that can, if harnessed properly, solve nearly all problems, economist hold that everything from scarcity of key resources to runaway climate change will be addressed in course, as long as our markets are in place and we have either the right amount of government support or the right amount of freedom from government intervention (this is the main difference between liberal and conservative economists). How? Demand will create high prices, high prices will create incentive, and incentive (because we’re so damn clever) will create supplies—literally of everything or anything. Literally. The only thing whose replacement hasn’t been assumed that I know of is water.

Thus Bernstein will conclude in his short “rebuttal” of “the end of growth” position: “Economic historian Simon Kuznets pointed out that a slowdown in economic growth can come from either of the two basic economic sources: supply or demand. He believed that supply, driven by man’s innate curiosity and industry, could not be the source of stagnation. . . . Ecological . . . and demographic forces do not seem likely impediments to growth.” Other economists will take a similar position: “We will NEVER run out of non-renewable resources simply because the price will rise to make extraction cost-prohibitive. At that point, we will have to switch to renewables simply because of the cost. Furthermore, because of those price signals, entrepreneurs will come up with new ways to reduce the use of fossil fuels and other non-renewables” (Zagros Madjd-Sadjadi). And this from Nobel Laureate Robert Solow: Since “it is very easy to substitute other factors for natural resources, then, there is, in principle, no problem. The world can, in effect, get along without natural resources."

The Copernicans, in contrast, hold that this faith in progress, permanent economic growth, and all-powerful human innovation comes from the pre-Copernican economists’ overgeneralization from a very specific time period. I would also note that it is a short time period. The Norse inhabited Greenland in the middle ages for 450 years, before they died off. It has only been a bit more than 200 years since the industrial revolution really got going, and Bernstein marks 1820 as the year in which economic growth as we know it began in earnest. We Copernicans of course acknowledge the accomplishments of human innovation—how could we not? But we also note that the permanent reality that economists believe they have discovered and can now manage and perpetuate for another thousand years was made possible by new sources of energy unmatched in the previous history of humanity. The exponential growth curve of world GDP matches the exponential growth curve of fossil fuel use almost exactly.

In contrast to the pre-Copernicans, we Copernicans like to emphasize the fact that there has never been economic growth, either long-term or short-term, without a parallel increase in fossil fuel usage. The myth of a low-energy economy (or “decoupling” as economists like to put it—the decoupling of GDP and energy usage) is just that--a myth. It means that the heavy industry is happening somewhere else. Juliet Schor is also very good on this—very empirical. While economists tend to mistake money (which is a symbolic system that is not subject to the laws of physics) with wealth (which is the supply of material goods and services, not credit-default swaps and unpayable debt recorded as an asset), Copernicans show how the economy, at root, follows the laws of thermodynamics, not to mention those of biology, chemistry, and importantly the basic facts of geology. Our alleged “knowledge economy” is just the management sector of a growing, fossil fuel-dependent, ecologically devastating, material based “real economy.”

It is easy enough to see how the issue of Peak Oil provides the Waterloo for pre-Copernicans and Copernicans. Economists have recently begun to acknowledge that the obviously finite supply of oil may eventually result in its depletion and that demand for it won’t automatically create more supply of it (yes, this is snarky, but I can show you reams of quotations where economists more or less say that demand can work like that through “enhanced drilling techniques,” none of which they actually bother to study; but why bother? If they haven’t yet been fully refined, human innovation will eventually provide the necessary ingeniousness—and thus does faith make detailed investigation seem increasingly unimportant). Their response to Peak Oil, predictably, is that innovation, triggered by the growing cost of oil, will invariably (not “probably” or “possibly,” but “definitely”—truly, I couldn’t make this stuff up) produce new, replacement sources of energy, as well as previously unimaginable efficiencies to help stretch out our current supply.

Economists routinely think they can dispose of the issue of Peak Oil by explaining that we Peak Oilers somehow have failed to notice the last two hundred years of human ingenuity and therefore don’t have sufficient faith that a new energy source is just around the corner. Thus the fact that economists don’t feel compelled to delve into these issues more fully, but will just use the word “innovation” and blithely move on. I could have written the blurb from our local anonymous economist myself as a parody, so routine and predictable has it become--for they do seem to think that the word “innovation” alone closes the discussion.

When dealing with two competing paradigms, it is, I admit, sometimes hard to sort out the merits of the competing arguments. The best way, I think, is to see if they are able to answer each others questions and challenges. If submitted to this test, the Copernicans fare far better. While Copernicans like Foss or me have a good understanding of the economists’ world-view (it is, after all, audible hourly on NPR, is held by the editors of all major newspapers, is the ideology of Republicans and Democrats alike, and was what we were taught in school) economists don’t have a very deep understanding of the Copernican world view, which is why when challenged by us, they tend to just repeat the very beliefs that we are criticizing in the first place, often while pulling institutional rank.

I could go on for pages about the questions, problems, and issues that we raise and that economists don’t have an answer for and therefore don’t directly address. Jeffery Sachs is an interesting half-exception, as he sits between the two worlds and tries to make them meet. It is interesting to watch him struggle and contort and gyrate himself to find away to make the sun and the earth orbit each other. At any rate, I cover many of these issues and challenges in my “basic energy literacy” and “energy and the economy talks.” They are pretty basic, only just not widely heard. But you won’t find an economist who will speak to the issue of ERoEI (Energy Return on Energy Investment or Net Energy), which is about as basic a concept as the difference between revenue and profits. Nor will they acknowledge that the substitutions of one resource for another that human genius allegedly can always invent almost always involve the direct or indirect use of fossil fuels. The big one is the substitution of fertile soil with what economists refer to as “technological innovations,” but that mainly amounts to chemical fertilizers (nitrogen fertilizer, by the way, is literally synthesized from natural gas). The “substitution revolution” is a fossil fuel phenomenon. They have no answer to the view on one hand that by 2050 our economy will need to be 6 times its current size, according to Sachs, and on the other hand that the oil or other energy necessary to fuel that economy, even by there own estimates, would necessitate the equivalent discovery of 5 new Saudi Arabias (on Earth?) just to supply the liquid fuels (never mind the electricity).

Among the basic points of contention, here, is whether oil, coal, and natural gas are replaceable with other sources. Based on the over-emphasis of human ingenuity, almost everyone in modern industrial society assumes, “yes, of course they can.” But if we really look at the thermodynamic qualities of fossil fuels, this becomes far less plausible. While I, along with others, have written 100s of pages on this issue, I challenge you to find an economists who can provide a specific, numbers-based explanation for how the amount of energy that we have come to depend on can be replaced with another source, an answer, that is, that doesn’t simply assume that “someone will think of something—they always do.” The few attempts that have been made suffer from the simplest errors (like not differentiating between gross and net energy). Examples available on request.

But to put this issue closer to the economists’ terrain, we can simply look at how the alternative energy sector has, in fact, responded to high oil prices. According to the pre-Copernicans, when oil grows expensive, innovators will bring other supplies on line. The spike of oil costs to $150/barrel would seem to provide just the “price-trigger” that would result in the promised innovations. Has this happened? Are there signs it is happening or can happen? Since 2008 the world supply of non-fossil fuels has increased only by about 1%. Despite much ballyhooed anecdotes (nice NPR stories if you ignore the issue of scope and scale), investment in renewables is relatively low and there is no evidence that they are anywhere near becoming substantial (i.e. more than around 10%) of the total energy supply. The truth of it is that it is far more complicated than sprinkling a few shakes of the magic elixir of supply and demand and innovation on our mobile army of entrepreneurial innovators. Setting aside my contention that fossil fuels are irreplaceable, how long does it take to develop alternative sources and create a new infrastructure for them? What if it takes 20 years? Or 30? Where will the investment come from? Are these “bankable projects” which will make enough money to warrant the investment? At what scale would we need to invest? What if the price-triggers occur during a recession or as the cost of climate change further pressures our economies? Even questions like this, which are right up the economists’ alley, are almost never addressed by them. I challenge you to get direct answers about these. You won’t find them. You’ll instead hear: “these people don’t understand the fact that innovations will occur.” This is how mainstream, pre-Copernican economists will attempt to dispose of the like of Foss, by “explaining” that she doesn’t understand the main tenants of the faith—those ones that she is in fact challenging in the first place.

A final note on Foss: while I’ve described the general contours of her world view, she is interesting in that because of her training (yes, as an economist) she is very comfortable on their terrain and is very good on the specific problems even within the pre-Copernicans world view that they are currently unable to address. For instance: what sort of economic growth would be necessary to actually refinance, not to mention actually pay-off, current levels of debt? What sort of economic growth would be necessary to solve the European debt crisis? Even if you believe in sustainable economic growth on a finite planet, these numbers are mind-boggling. That pre-Copernicans don’t generally address them, and yet instead maintain full faith in the long-term efficacy of their paradigm is, for me, further evidence that this is mainly a faith-based system they are touting.

Please join us this Tuesday evening for a special repeat appearance in Madison: Nicole Foss: futurist, international lecturer, and co-author of the top-rated financial blog www.TheAutomaticEarth.blogspot.com The Great Recession, Energy Depletion, and Political Turmoil -- Free and open to the public Date/Time: Tuesday, January 3rd, 7:00 PM Location: The Goodman Community Center 149 Waubesa Street Madison, WI 53704 Map: http://tinyurl.com/7r2u3f4 Sponsors: WORT, Madison Peak Oil Group, UW Madison Energy Hub, Transition Madison Area, RENEW Wisconsin Pre-event Publicity: Nicole Foss will be interviewed live on WORT during an hour-long program starting at noon on Monday, January 2nd. Richard Heinberg, James Howard Kunstler, and Dmitry Orlov – leading luminaries in the Peak Oil/Post-Carbon world – will be calling in as guests. Matt Rothschild of Progressive Radio will also be interviewing Nicole on Wednesday Jan 4th. It will be available here: https://www.progressive.org/radioweekly For more information please contact Hans Noeldner hans_noeldner@charter.net

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